Rating Effectiveness of Production Materials Management

Enterprise resource planning (ERP) is the cornerstone of production
materials management in a production-focused business entity. Proactive
production materials management starts by integrating sales information
for the final product into the ordering process for raw materials and
externally sourced sub-assemblies.

Best practices in production materials management start with coherent
information flow. From an accurate demand forecast by sales, to
accurate Bill of Materials, to accurate Master Planning System
algorithms, the chain of information cannot have weak links.

The Gold Standard

Japanese manufacturing companies developed Just in Time systems to
support the most effective production materials management. There is no
excessive inventory anywhere in the system. The only inventory on site
is those raw materials or sub assemblies required for that day’s
production.

To achieve this, significant and sustained improvements
are required versus older industry standard practices. Vendors must be
certified or qualified to meet exacting performance standards. Supply
chains must be virtually transparent, often through the use of e
procurement and such real time visibility tools as RFID tracked
shipments.

The Functional Standard

Typically, most production materials management systems
fall short of the gold standard. How short determines how successful
and efficient you can consider them. Organizations meeting the
functional standard balance shelf space with the benefits of the
economic ordering quantities that might naturally result from low cost country sourcing.

JIT systems tend to focus on domestic sourcing
because local suppliers are more reliable. There are simply fewer
potential failure points in a supply chain when the logistics tail is
short. Strategic sourcing methodology is the keystone of production
materials management. SAP materials management systems are the tool to execute.

The functional standard allows for companies to make
conscious decisions about balancing costs and risks of inventory
management. ERP systems and the sap materials management systems that
provide their backbone play a critical in successfully integrating
master production system (MPS) needs data with Master Resource Planning
(MRP) raw material data.

Laggard Models

There are still many small to medium companies using
traditional materials management processes that put them at risk. Either
the company falls short on the materials needed for production,
necessitating expensive expedited orders, or develops an excess of raw
materials requiring storage space and additional handling.

The Road Forward

One of the reasons that SAP materials management
software is so preeminent is its full integration of enterprise
functions from purchasing through sales and distribution. By having a
single coherent platform to support production, as well as other supply
chain needs, companies are well positioned for gains in efficiency.